When looking for mortgage broker, you will need to do your homework to ensure you work with someone qualified. More than 50% of all mortgage borrowers secure loans through a broker. Although there are a number of advantages, the main benefit is that rather than going through a bank, the broker shops various lenders for you so you get the best deal. Typically, borrowers feel comfortable working with big name brokers but even so, specific questions should be asked before you make the final decision.
References – Always ask the mortgage broker for references. The best solution would be to find a good broker through a friend or family member but this is not always possible. Therefore, we recommend you find several reputable brokers and then start by asking them for references. If for any reason you are denied, then you should see a red flag. Once you are provided with references, follow up, asking other borrowers if they were happy with the service received.
Experience – You also want to determine the number of years the broker has been in business. Now, while you cannot always gauge quality with numbers, it will show you if the person has experience. With this, we suggest you choose a broker with a minimum of three years experience.
Compensation – Mortgage brokers are paid with fees and yield spread premiums. Many times, the broker’s fees would be from points with one point equaling 1% of the loan amount. For the yield spread premium, you would find this to be more controversial. In this case, if you were to secure your home loan for 5%, the broker would try to encourage you to lock into a higher rate, say 6.75%. Then, the lender would pay the broker a few thousand dollars for signing you at the higher rate. Now, if you do not have money for closing, the yield spread premium can be beneficial, but you need to know the way in which the broker will be paid.
Rate Locks – You also want to determine the way in which the broker handles rate locks. The reason is that some brokers will gamble with these locks. In other words, the broker locks into a certain rate on a particular date. With this, you would be told by the broker that the rate has been locked in. However, the broker secretly does not lock in the rate, thus hoping rates will drop before time for closing. If the rates do drop, the broker would lock in a lower rate but you pay the higher rate with the broker being paid the difference, thus making a profit. Therefore, you want to ensure your broker will have a loan commitment letter from the lender so you know exactly the interest rate and date the rate was locked in.